Monthly financial reports worth a small business owner’s time come down to five: the profit and loss statement, the balance sheet, the accounts receivable aging, the accounts payable aging, and a cash view for the next few weeks. Read those five for twenty minutes a month and you will catch most problems while they are still small. Everything else is detail.
This post is for owners in Los Angeles who receive reports from their bookkeeper, or run them in QuickBooks Online or Xero, and are not sure which ones matter or what to look for. You will learn what each report answers, the specific lines to check, the numbers that signal trouble, and the order to read them in. This is the review we walk clients through after every close at Books LA.
The five monthly financial reports, and the question each one answers
| Report | The question it answers | Read it when |
|---|---|---|
| Profit and loss statement | Did we make money this month, and where did it go? | First, every month |
| Balance sheet | What do we own and owe, and is the cash number true? | Second, every month |
| Accounts receivable aging | Who owes us, and how late are they? | Monthly, weekly if cash is tight |
| Accounts payable aging | Who do we owe, and what is due before payroll? | Same cadence as receivables |
| Cash view (13-week or simple forecast) | Will there be enough cash for the next payroll, rent, and tax deposit? | Monthly, more often in slow seasons |
Most guidance, including the U.S. Chamber of Commerce’s list of monthly reports, lands on the same core set. The difference between owners who benefit and owners who skim is knowing which lines to look at. That is the rest of this post.
The profit and loss statement: five lines, not fifty
The profit and loss statement lists revenue, costs, and expenses for the month, and the net result at the bottom. Do not read it top to bottom. Read these five things, comparing this month to last month and to the same month last year.
- Revenue by line. Which product or service moved, and is the mix shifting? A flat total can hide one line falling while another grows.
- Gross margin. Revenue minus direct costs, as a percentage. If it drops two points, a supplier raised prices, a discount ran too long, or something was miscoded.
- Payroll as a share of revenue. The largest expense for most service businesses. Watch the percentage, not the dollars.
- The three biggest other expenses. Usually rent, software, and marketing. Anything new in the top three deserves a question.
- Net profit, then owner pay. Remember that owner draws are not on this report. A profitable P&L with heavy draws can still leave the bank empty, which is why the balance sheet comes next.
If your report has more than about thirty expense lines, ask for them to be grouped. Detail belongs in the general ledger, not in the monthly review. Our post on the mid-year financial review shows the same lines over a longer window.
The balance sheet: where the errors hide
The balance sheet is a snapshot of what the business owns and owes on the last day of the month. Most owners skip it because it looks abstract. It is the report that catches bookkeeping mistakes, so spend five minutes on these checks.
- Cash matches the bank. Every bank and card balance on the report should equal the statement balance after reconciliation. If it does not, nothing else on either report can be trusted.
- No negative balances. Negative cash, negative receivables, or negative payables mean something was booked backwards.
- Undeposited funds is near zero. A growing balance here means income is being counted twice or deposits are not being matched.
- Liabilities move the right way. Sales tax payable should tie to the return you are about to file. Payroll liabilities should clear after each deposit. Loan balances should go down.
- No “Ask my accountant” or suspense balance. Those accounts are parking lots. By month-end they should be empty.
These checks are the same ones in the monthly bookkeeping close, and the free DIY monthly close checklist puts them on one page.
The two agings: who owes you and who you owe
The accounts receivable aging lists every unpaid customer invoice by how old it is. The accounts payable aging does the same for bills you owe. Together they explain most of the gap between the profit on the P&L and the cash in the bank.
- On the AR aging, look at everything over 60 days and decide on each one this month: call, discount, or write off. Old receivables do not age into cash.
- On the AP aging, look at what is due before the next payroll and rent. Then check for bills that appear twice or vendors you no longer use.
- Compare the totals month over month. Receivables growing faster than revenue means collections are slipping. Payables growing faster than purchases means cash is being stretched.
The cash view: the report that prevents surprises
The formal cash flow statement is useful for a CPA or a lender, but for monthly decisions a simpler view works better. Start with the bank balance today, add expected receipts from the AR aging, subtract the AP aging, payroll, rent, loan payments, and the next sales tax and payroll tax deposits. Do it for the next four to thirteen weeks. The output is one number per week: projected cash. When a week goes negative, you have time to act. Our Q4 cash flow planning post walks through the mechanics.
Twenty minutes, in this order
- Balance sheet first, two minutes: does cash tie, and are there any negative or parked balances? If not, stop and ask the bookkeeper before reading anything else.
- Profit and loss, eight minutes: the five lines above against last month and last year.
- Agings, five minutes: anything over 60 days, anything due before payroll.
- Cash view, five minutes: any week in the next quarter that goes negative.
- Write down the three questions that came up and send them to your bookkeeper in one message.
That last step matters. A monthly review that produces three questions is working. One that produces none usually means the reports were skimmed.
How Books LA handles this
Every client close ends with these five reports and a short note pointing at what moved and what needs a decision. We reconcile the balance sheet before the P&L goes out, so the cash number is one you can act on. If you are getting reports you do not read, or not getting a balance sheet at all, a $495 bookkeeping review will show you what your file currently supports. Our monthly packages describe what each level delivers.
Frequently asked questions
What financial reports should a small business review every month?
At minimum the profit and loss statement, the balance sheet, the accounts receivable and payable agings, and a short cash forecast. Those five answer whether you made money, whether the numbers are true, who owes whom, and whether cash will hold for the next several weeks.
What is the difference between a profit and loss statement and a balance sheet?
The profit and loss statement covers a period and shows revenue, expenses, and profit for that month. The balance sheet is a snapshot on one date and shows assets, liabilities, and equity. Profit lives on the first; cash, debt, and errors show on the second.
Which report tells me if I can afford to hire?
None of them alone. Use the P&L for the trend in revenue and margin, and the cash view to test whether the added payroll clears every week for the next quarter. If the cash view holds, the P&L confirms it is sustainable.
Why does my P&L show profit but my bank account is empty?
Usually owner draws, loan principal payments, or unpaid customer invoices. None of those are expenses, so they never reduce profit, but all of them reduce cash. The balance sheet and the AR aging show where the money went.
How often should I look at the accounts receivable aging?
Monthly at minimum, weekly if cash is tight or you carry a lot of invoices. The point is to act on anything over 60 days while the customer still remembers the work.
Do I need a cash flow statement or a cash forecast?
For monthly decisions, a simple forward cash forecast is more useful than the formal cash flow statement. Keep the formal statement for your CPA and lenders; use the forecast to see the next payroll coming.
Should reports be on a cash basis or accrual basis?
Run management reports on the basis that matches how you decide, and keep the tax basis consistent with what your CPA files. Many small businesses review accrual for the picture and file on cash. Whichever you choose, use the same basis every month so comparisons hold.
If your monthly reports raise more questions than they answer, book a short call and we will read last month’s set with you.
